Month: October 2015

In Texas, our citizens are mulling over whether or not to approve seven amendments to our state constitution (which, by the way, has almost 500 amendments already). Perhaps your state is also proposing similar initiatives or proposals for amending your state’s constitution during this current election cycle. On a national level there is an entire laundry list of proposed amendments that individuals want added to our US Constitution. However, in considering all of these, may I recommend that you not just evaluate the proposed amendment as something that sounds good to you or would personally benefit you, but rather that you step back and look at the bigger picture of how these proposals fit into the framework of what a constitution is supposed to be.

The purpose and function of a constitution, whether state or national, can be summed up in these three points:

To define the structure of the government and its duties;

To define the areas of the government’s authority; and

To define the scope and limitations of the government’s powers.

This is true even of tyrannical governments that generally have constitutions also (e.g., the old Soviet Union). However, in a free society a constitution is also put in place to protect the freedom and liberties of the people from government overreach. Such was the stated purpose by our founders for their authoring of the US Constitution (and the same as well for all of the state constitutions).

Thomas Paine rightly summed up these purposes with these words:

“…when there is a constitution which defines the power, and establishes the principles within which a legislature shall act, there is already a more effectual check provided, and more powerfully operating, than any other check can be….the check is in the constitution, which in effect says, ‘Thus far shalt thou go and no further’” – The Rights of Man, Part II, chapter 4.

So in considering whether or not to ask your US Representative or Senator to propose a particular amendment, or to vote for a resolution to amend your state constitution, remember:

To examine each one, not by the immediate and apparent personal benefit you would receive, but rather by whether or not it fits with the definition of the purpose and function of a constitution;

If a proposed amendment is legislative or regulatory in nature and therefore best handled in that fashion or through existing laws/agencies, then it should not be added to the constitution;

To take into consideration any special interest groups/PACs that are advocating, pushing for, financing or lobbying in behalf of a particular amendment, and if the proposed amendment would be of special benefit to them as opposed to everyone;

finally, and most importantly,

Amending a constitution is a really, REALLY, REALLY BIG DEAL, and should not be taken lightly or without serious thought and evaluation.

Our debt is soaring, our unfunded liabilities are beyond comprehension, deficit spending continues unabated, and Congress refuses to make the tough decisions to solve any of these problems. Instead, they persist in perpetuating them via one “continuing resolution” after another instead of a responsible, balanced budget. However, as I pointed out seven weeks ago, just balancing the budget is not going to solve our problem – it will help and is a good first step, but there is no single, one-step solution, as I’ve spelled out over the past six weeks. So here is a recap of the several pieces I’ve put forth that must be employed simultaneously to bring us back from the brink of fiscal and economic collapse.

Freeze our spending at current levels. Prioritize items and increase spending in areas desperately needed and constitutionally required while cutting back on those not constitutionally permitted. This would include immediate elimination of all government subsidies to businesses and organizations not constitutionally eligible for government funds.

Eliminate all duplicative programs/agencies. Begin a five-year step down elimination of the funding to all unconstitutional agencies/bureaus at which time they will be eliminated completely. Return control of non-nationally related duties to the states as was intended by our founders.

Repeal the Administrative Procedure Act of 1946 and force Congress to assume all legislative responsibilities and the courts as the sole avenue for adjudication of disputes.

Return to the welfare reforms put in place in the 1990s’ (and expand those reforms). By removing government’s heavy hand from our economy as stipulated in points two and three, we will experience economic growth that will provide employment opportunities to those currently on welfare – give people a hand up via a free economy, not a hand out from government dependency.

Place a freeze on legal immigration and clamp down hard on illegal immigration, including the deportation of all those who are here illegally. Those here via both means constitute competition in the job market for Americans and place a huge drain on our overly generous welfare system (see point number four).

Repeal the 16th amendment that authorized the income tax, thereby eliminating all income-related and payroll-related taxes and convert to a consumption-based system of revenue as outlined in H.R. 25, “The Fair Tax Act.”

As I’ve tried to outline, albeit briefly, each of these areas must be done in concert with each other. Some may be accelerated and fast-tracked so that they are accomplished sooner than others, but they all should and must be completed within a five-year time period for one simple reason – we’re out of time and the edge of the fiscal cliff is upon us.

During this election cycle we are hearing candidates spout different plans for reforming our tax code/system. Since revenue is the other side of the coin (spending being the other) that most directly impacts our deficit and increasing debt, it is an major piece of the puzzle that requires addressing. The issue raised by leftists is we need more “revenue” (i.e., taxes), but history has shown that rarely, if ever, does an increase in “revenue” result in a decrease in deficit spending, but rather spurs on even more spending on more unconstitutional programs and agencies.

Could the country use more revenue? Yes, if that additional amount is used solely to pay down our debt. To this end I would submit that once our tax system is replaced, not “reformed”, that excess revenues be required by law be applied to debt reduction. So what tax system would be best?

This cannot be fully answered in a short essay, as I’ve written in years past many pages on analyzing the various options being bandied about. I would submit that the best choice is to replace all income-related taxes with a consumption tax. There has been a bill in the House of Representatives (and a companion one in the Senate) since the early 1990s’ that leadership will not allow to come to the floor for a debate and vote that would do away with these taxes, the IRS, and call for a repeal of the 16th amendment. This bill is most commonly known as “The Fair Tax Act”.

I cannot get into the details of how this system would work, but I will list the main points:

Studies have shown that it would be cost neutral in terms of product and service prices once the transition to it has been fully accomplished as everything we purchase has built into them a 23% cost directly tied to income-related taxes. When those taxes are eliminated, market forces will cause the prices for everything to fall by at least that amount.

It gives everyone an immediate 7.65% pay increase as Social Security and Medicare taxes are no longer deducted from workers’ pay checks (a special benefit to lower wage earners).

It will actually increase revenue in that those who currently pay no taxes on income due to the so-called “underground economy” and illegal activities would now pay taxes when they make purchases.

The wealthy will pay more in taxes as they buy more high-priced items, and we all know that the higher the cost, the greater the sales tax.

We each will control the amount of tax we pay by managing our purchases instead of the government extracting what it determines we should pay and when it must be paid from our earnings.

In 1997 a Congressional Joint Committee on Taxation issued a report compiled by a number of leading economists who had conducted a modeling analysis of our current income tax system with some modifications that were being proposed at the time along with models of changing the system completely to a consumption tax. On page 19 of their report it states

“From the medium to long-run perspective, the consumption tax produced a stronger positive growth effect than the unified income tax….” Then on page 34 it goes on to state that “…tax restructuring in the form of a consumption tax will ultimately produce higher economic growth….”

The benefits that aided in producing these results were spelled out to be the following:

“…reducing the cost of capital through less taxation of capital provides an incentive for additional investment; reducing the marginal tax rate on labor provides an incentive for increased labor effort; increasing the returns to labor through capital deepening can provide an incentive for more labor; and,…reducing distortions in investment decisions by eliminating differential taxation of different types of capital promotes a more efficient allocation of resources.”

In short, moving to the Fair Tax, according to this report, would be the stabilizing boost our economy so desperately needs:

“The broad consensus of all the modeling approaches, that moving from the present-law income tax base to a uniform consumption tax base will result in a long-run increase in GDP, capital investment, and labor effort,”

In closing, I will answer the matter I mentioned in Part V of this series, namely what to do with the employees of the IRS when that agency is reduced. In order to increase enforcement of our immigration laws and auditing of businesses to ensure their compliance in not hiring illegal aliens, many of these individuals could be moved over to the Immigration and Naturalization agency, thus solving a manpower requirement there without having to increase the number of government employees.

A debate can easily be had over what is the greatest threat to the US today. Credible arguments can be made for international threats from ISIS, Russia, China and Korea. However dangerous as those threats are thanks to the deliberate evisceration of our military and global strategy by this president, the more immediate threat comes from within, again thanks to Obama and his minions in Congress as this threat is not only a danger to us in the form of terrorism, but even more so in financial terms. So, as we are looking at solutions to corralling the government’s runaway spending we must while implementing the previous four parts I’ve suggested turn our attention to the threat of immigration, both legal and illegal.

It cannot be denied that illegal immigration places a heavy burden upon our financial stability as these individuals cost schools, cities, counties, and states, in additional to the federal government, much more than they can ever hope to contribute. In addition they take jobs that could/should go to Americans (despite the false argument that they only do jobs that Americans won’t do), thus compounding more financial worries upon those unemployed and straining government budgets at every level.

Legal immigration also poses a problem in that those we allow in many times are either highly educated and thus complete for jobs against native Americans with similar education and training (think H1B visas) or they are from the lower economic rungs and offer little to our economy.

So, in approaching the issue of immigration both legal and illegal must be addressed. Several argue that we should put a moratorium on all legal immigration, and that would be a needed first step in that arena. We should not be letting immigrants into the country unless we at first are certain they are needed. 2015 America is not the same as 1900 America (or earlier).

As for illegal immigrants, there are several things that must be done, all of which have been put forth by various other individuals (for the best information on the threat of illegal immigration I highly recommend the documentary series produced by Dennis Michael Lynch: They Come to America – I, II, III).

First, the economic magnet that draws them here must be dismantled. As Milton Friedman stated, you cannot have a welfare state and open borders as those pouring across into the country for all the “free stuff” will overwhelm and sink the system. This means no more public education, no in-state tuition at universities and colleges, no free medical care at hospital emergency rooms, no food stamps, no housing assistance, etc. It also means heavy penalties for businesses and individuals who hire illegals. The enforcement of our immigration laws will not require an expansion of our government, and I’ll outline how in the next installment of this series.

Finally, those caught here must be deported back to their country of origin and the cost of such action be imposed via a corresponding reduction of foreign aid to the governments of those countries or the imposition of a tariff fee on imports from them (limited strictly to the cost of deportation). This is the only way to incentivize those governments to focus on improving their own lot instead of sending their problems of impoverishment to our shores.

As you can see, the solution to our looming fiscal crisis is not just limited to “reduce spending” or elimination of duplication in the government or even unconstitutional spending. All of these suggestions I have put forth are part of a fabric that most be woven and implemented together if any are to succeed. The next piece of the puzzle is the other side of the fiscal coin, namely, revenue and how it is collected.

Well, the fiscal year ended Wednesday and again our elected officials, both in the administration and in Congress failed to fulfill their fiscal duty to create and pass a budget for this new fiscal year we have just entered. Instead they passed yet another “continuing resolution” to spend, spend, and spend with no regard to the constitutionality of what our money is being spent on or the increase in the debt burden they have placed upon us and future generations.

While Congress should be putting the brakes on spending, prioritizing and eliminating unconstitutional bureaucracies, subsidies and duplicative programs, repealing unlawfully created regulations, the issues of welfare reform and immigration must also be addressed as they are huge contributors to our budget and deficit.

The great Nobel prize winning economist, Milton Friedman, correctly pointed out that you cannot have a welfare state and open borders as those in the lower levels of other countries will pour into the country seeking the freebies offered by that welfare system. This is precisely what we see happening today and why these two issues are so closely intertwined and must be addressed together (along with the other previously discussed steps).

We had taken great steps towards welfare reform and a reduction in the welfare rolls in the 1990s’ but subsequent administrations and congresses have undone those reforms and instead broadened and multiplied the programs offered. We must return to the mindset we had in place twenty years ago, build upon it, and further work to reduce those programs and costs. If government will quit interfering in the economy so that it can grow and expand, then such programs will become less essential. As I said with the bureaucracies in a previous essay, they obviously cannot be eliminated immediately, but they too need to be prioritized, duplications eliminated, and a step-down plan put in place that will wean us from them.

Tied to that, as mentioned, is the need to secure our borders, which topic I will address in the next installment. In closing this essay, I leave you with these words of wisdom from MIlton Friedman’s classic work, Free to Choose, which contains an excellent section on the Welfare State:

“The waste is distressing, but it is the least of the evils of the paternalistic programs that have grown to such massive size. Their major evil is their effect on the fabric of our society. They weaken the family; reduce the incentive to work, save, and innovate; reduce the accumulation of capital; and limit our freedom. These are the fundamental standards by which they should be judged.”